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India Witnesses Online Shopping Boom

  • Anjana Pasricha

Workers are seen at their workstations on the floor of an outsourcing centre in Bangalore, February 29, 2012.

Workers are seen at their workstations on the floor of an outsourcing centre in Bangalore, February 29, 2012.

India is witnessing an online shopping boom as more and more people get comfortable spending money with the click of a button. The total e-commerce market has increased some 400 percent in the last five years. India's retail industry is responding to the demand from the country’s tech-savvy, increasingly wealthy young population.

Whether it is cosmetic jewelry, handbags or watches, 30-year-old Shweta Andrews no longer waits to visit stores or shopping malls to clinch a deal. She says her busy work schedule makes it easier to surf e-commerce retail shopping sites that have sprung up in recent years.

“I really love it," she said. "Anytime, just take out 15 minutes, if you have something in your mind that you want to buy, just go to that particular website, buy it, so that’s, you know, great. It’s better than going out because I can do it everyday.”

E-commerce is still a small fraction of India’s $500 billion retail market. But sales are soaring as young people, who are spending more and more time on the Internet, become comfortable with online transactions.

India now has about 20 million active online shoppers, who mostly browse online for clothes, accessories, footwear, consumer electronics and beauty products. A majority of these customers live in the country’s bigger cities.

They are being lured by companies like Snapdeal.com.

Kunal Bahl, co-founder of Snapdeal.com, went online three years ago after many customers said they wanted to buy the coupons and discount cards he sold through stores on the web. Today his online site has expanded into selling an array of retail products.

“We instantly saw action," he said. "What we thought we would do in sales in three months, we did in one week, in the first week. And that gave us further conviction that for completely uninitiated entrepreneurs in the online space, we seemed to be doing reasonably well. So clearly that is not because of our efforts, but because of the inherent demand that exists in the market.”

Bahl hopes that he will hit sales of $1 billion by 2015.

Turning a profit

However, growing sales may not solve the problems faced by online retailers. That is because while the number of transactions is growing by the day, companies are still struggling to turn in profits.

Shabori Das at the market research firm, Euromonitor, says most online retail companies lure customers by offering big discounts, free deliveries and the option to pay cash on delivery. He says that is hurting their profit margins.

“When you compare the average cost of acquisition of a customer, it is very high as compared to the average item sold through a website," said Das. "When you are acquiring a customer, you have to take into account the cost of the item, the cost of shipping, the cost of packaging and in most cases when you do cash on delivery, you are basically providing the product on credit. So these expenses add up.”

Still the retail goods market that is expected to grow by 17 per cent every year is encouraging more and more entrepreneurs to go online. They say the lack of infrastructure in Indian cities will encourage more people to shop on the web in the years to come. Many of the smaller towns lack supermarkets or shopping malls. In bigger cities, traffic snarls and parking woes sometimes deter even committed shoppers from venturing out.

Success story

Rahul Jagtiani, whose family is in the interior design business, defied skeptics to go online with plushplaza.com, which sells home décor and gift items.

"That time everybody felt this is not going to work online, there is a certain emotional connect, there is the whole touch and feel factor which you don’t get. But I felt if products are showcased well, and the photography is good and your integrity is good, we can bridge that gap, and it’s been pretty good so far," Jagtiani said.

Business has been good due to customers like Shweta Andrews, who say online shopping is the way to go.

"Online, what happens is, you always get discounts. No matter what season, whether it is fresh stock or anything, you always get discounts. That is the benefit. You save time, you save money," Andrews said.

Two thirds of India’s 1.2 billion population is under 35 years of age. Market research firms say that is exactly the segment that has growing incomes and aspirations, and is expected to drive the overall e-commerce market up from $10 billion at present to $70 billion by 2020.
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